Microsoft's push for Xbox profit margin blamed for layoffs, cancellations, and division closures

Microsoft has reportedly tasked Xbox with delivering a 30% profit margin. The 30% target apparently took effect in the fall of 2023, when Microsoft Chief Financial Officer (CFO) Amy Hood’s team assumed a more prominent role within Xbox, marking a shift away from a period when finances were not the primary focus.

As a result, Microsoft Gaming CEO Phil Spencer had to find ways to reduce expenses and boost profits to meet Amy Hood’s new target. The new moves included closing studios and laying off thousands of workers, canceling games such as Everwild, Perfect Dark, and Project Blackbird, and releasing more games on competitors’ platforms, such as the Nintendo Switch and Sony’s PlayStation.

 A Bloomberg report claimed that Xbox’s target profit margin of 30% is significantly higher than the industry average. Data from S&P Global Market Intelligence shows that average profit margins in the gaming industry fell between 17% and 22% in recent years.

Over the last six years, Xbox’s profit margins have fallen between 10% and 20%. S&P analyst Neil Barbour described  attaining 30% as “Usually reserved for a publisher that is really nailing it.”

Microsoft’s profit push spurs layoffs 

The Bloomberg report claimed that the decision to achieve a 30% profit margin brought negative effects, resulting in the cancellation of projects, studio closures, and employment losses at Xbox. On July 2, Microsoft’s gaming division announced widespread layoffs that affected multiple development studios, including The Initiative, which led to the cancellation of its first-person shooter project, “The Perfect Dark remake.” 

Xbox Game Studios’ head, Matt Booty, sent an email to staff members stating that the company was closing to adjust priorities and focus resources on setting up the firm’s teams for greater success within a changing industry landscape.

The closure occurred amid widespread layoffs at Microsoft, particularly within the Xbox division. In May, the parent company of Xbox closed Tango Gameworks, Arkane Austin, Alpha Dog Games, and Roundhouse Games.  

On October 7, Xbox implemented a 50% pricing increase for Game Pass. The Xbox parent company stated that in markets such as Germany, Ireland, South Korea, Poland, and India, the price rise will only affect new purchases at this time, not current members. The tech giant noted that current customers in these markets will be informed of pricing adjustments “at least 60 days in advance,” which means the adjustments won’t take effect for at least another two months.

Microsoft restructures workforce to boost agility and profitability

As previously reported by Cryptopolitan, the Windows maker announced one of the largest layoff runs in the company’s history, terminating thousands of workers. Microsoft said the layoffs could impact up to 4%, or around 9,000, of the company’s staff as part of an ongoing effort to reduce its personnel.  According to a regulatory filing in July, 830 workers were laid off in Washington.

The action follows the Windows maker’s layoffs of over 6,000 workers in two rounds, in May and June, including nearly 2,300 based in Washington. The corporation has laid off more than 3,100 workers in Washington and over 15,000 nationwide since May.

According to data from Washington state, Microsoft made a point of flattening managerial layers during the May layoffs. Only over 17% of those layoffs in Redmond were identified as managers. 

Microsoft Chief Financial Officer Amy Hood alluded to the reorganization during the firm’s earnings calls on April 30. Hood stated that the tech giant was concentrating on building high-performing teams and increasing agility by reducing layers of management to improve the company’s profitability.

As of June 2024, Microsoft employed more than 228,000 people worldwide.

The company’s gaming boss, Phil Spencer, admitted to employees that his teams were affected by layoffs. He stated that the cuts would eliminate or reduce work in specific business areas and follow the Windows maker’s lead in removing layers of management to improve agility and effectiveness.

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